Recurring Subscription Model Appeals to Customers and Merchants

target-subscriptions-300Target recently announced the introduction of a subscription billing service for providing baby supplies to new moms and dads.

“Target Subscriptions” offer parents automatic delivery of basic items every four to 12 weeks. Parents pick from a list of 150 brand-name products available online, such as diapers and formula, in the quantity they want, and on what day they want their order delivered. With this new option, Target becomes one of the largest traditional merchants to offer the bulk sale of infant products through subscription billing.

The decision to open this additional sales channel is widely viewed by observers as a response to Amazon, which has its own subscription diaper service for parents.

Of course, other nationwide competitors, such as Walmart, have also been experimenting with recurring subscriptions as real store sales slow or stall in the wake of a difficult economy.

So, why is this happening now? Well, the answer is pretty obvious from my point of view.

The recurring subscription model is very attractive to parties on both sides of the check-out counter – the customer and the retailer.

The recurring subscription model is attractive to the customer because it’s much more convenient to have items delivered to their door than to have to make a trip to a brick-and-mortar store and collect those items into a literal shopping cart instead of a virtual one – especially when that customer is a harried parent with a toddler in tow!

The recurring subscription model is compelling for the merchant as well, because subscription billing restores the true definition of the word “customer” to the sales equation. Previously, retailers had customers only for the amount of time they went through the process of making a buying decision.

Once out that door, they were no longer an assured customer. They were once again a potential customer – the relationship was not ongoing.  The customer was a customer only in the sense that you hoped he or she would come back and do business again.

However, under the recurring subscription model, the customer is a customer in the true meaning of the concept: They are your customers until such time that they proactively leave you by cancelling the subscription.  And as long as you manage that customer successfully, your relationship can last a very long time.

That’s the beauty of this new channel: Under the recurring subscription model, the customer becomes what the customer relationship was always supposed to be, but really wasn’t in the traditional one-time purchase model: predictable.

Recurring subscriptions can smooth out the sales stream with all of the efficiencies that come from that. Previously, if I, as a merchant wanted to know what sales would be in the future, I could only look at past data and guess.  I’d have to tell myself, “This is what I think will happen in the future.” However, with subscription sales, I can say with some assurance, “Here is what is going to happen.” I can be fairly certain about how many people will do business with me and what they will be spending into the forseeable future. I will know what my churn rate will be, for example, along with many other details about our relationship, including buying habits. It makes marketing much easier, once I have that kind of customer profile in hand, and much more successful. I can precisely target campaigns, and generate better response rates.  In addition, I get a very reliable preview of what the future holds for me as a business. Predicting sales and profits becomes a quantifiable exercise, which is very compelling in terms of operating a money-making enterprise.

The change between old model and new model can’t be understated. We’re starting to see other legacy merchants jump on the bandwagon along with Target. This shift in retailing has been made possible because the technology behind the web browser has advanced to the point where such sophisticated services can be offered by retailers large and small. For these forward-thinking merchants, it’s no longer about chasing the next transaction. Instead, it’s about winning the customer’s loyalty.

I’ve been predicting for years that recurring subscriptions would come to larger, established retailers, so I’m not surprised by Target’s decision to launch its new service. What does surprise me is how quickly retailers such as Target are adopting the new model. Target listened to what its customers want, and responded accordingly. The sudden arrival of subscription sales is changing how merchants do business, and changing the retailing landscape.

To be sure, diapers are diapers, whether I walk into a store to buy them, or whether they arrive on my doorstep. The products and the dollars spent remain the same. What’s changing is the sales model. This model shifted from customers driving and parking in front of the local store to purchasing their items through a website with speedy delivery. It’s an improvement in convenience for the customer and in predictability for the merchant.

Everyone comes out ahead, and isn’t that the true measure of progress?

Brendan O’Brien is Chief Architect and Co-founder of Aria Systems.

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